Can Small Business Owners Deduct Health Insurance? + FAQs

Yes, small business owners can deduct health insurance premiums they pay for themselves and their families, as long as they meet certain IRS guidelines based on their business structure and personal coverage situation.

According to a 2023 small business survey, less than half of U.S. small businesses offer health insurance to their employees – largely due to high costs. This leaves many entrepreneurs paying for their own coverage out-of-pocket. The good news: the tax code provides a way for self-employed business owners to deduct 100% of their health insurance premiums in many cases. However, the rules are nuanced – misunderstand them, and you could miss out on thousands in tax savings or even face IRS penalties for doing it wrong.

In this comprehensive guide, you’ll learn:

🏷️ Who qualifies for the self-employed health insurance deduction and the key IRS criteria you must meet to claim it.
💰 How federal and state tax laws handle health insurance write-offs, and why your business type (sole prop, S-corp, LLC, etc.) makes a big difference.
🚫 Common mistakes to avoid when deducting health insurance (like forgetting a crucial payroll step or double-dipping on tax breaks).
📊 Real-world examples of how small business owners save money by writing off premiums, with comparisons of different scenarios (sole proprietor vs. S-corp vs. partnership).
📚 Recent law changes and court cases (in plain English) that shed light on what’s allowed – including a key case about deducting family coverage by employing your spouse.

Can You Deduct Health Insurance as a Small Business Owner? (The Short Answer)

Absolutely yes – if you’re self-employed or own a small business, you can generally deduct the health insurance premiums you pay for yourself, your spouse, and your dependents (including any children under 27). This is often referred to as the Self-Employed Health Insurance Deduction. It allows qualifying business owners to write off 100% of their health, dental, and even long-term care insurance premiums as an adjustment to income. In essence, you get to pay for health insurance with pre-tax dollars, just like an employer-sponsored plan.

However, there are important conditions. You must have a business profit (or adequate earned income from the business) to take the deduction, and you cannot be eligible for any other subsidized health plan (like coverage through a spouse’s employer or a government program) during the months you’re claiming your own premiums. The deduction’s mechanics also vary with business entity type – for example, a sole proprietor claims it differently than an S-corporation owner. Below, we’ll break down exactly how it works for each situation and what you need to know to fully benefit from this tax break.

Federal Tax Law: How Small Business Owners Can Deduct Health Insurance

Under federal tax law, the self-employed health insurance deduction is a powerful tool that lets qualifying small business owners deduct their health insurance costs above the line (meaning it reduces your Adjusted Gross Income). To leverage this, you’ll need to understand the IRS’s rules and how they apply to different business structures. Let’s unpack the federal framework step by step.

Who Qualifies for the Health Insurance Deduction? (5 Key Requirements)

Not every business owner can grab this deduction – you have to meet certain criteria. Generally, you qualify if you’re self-employed in some form and not covered by another plan. Here are the key requirements to be aware of:

You have self-employed income. This deduction is meant for people with business income. Qualifying “self-employed” individuals include sole proprietors, independent contractors, freelancers, partners in a partnership, members of an LLC treated as a partnership, and >2% shareholders of S-corporations. Essentially, if you report business profits on Schedule C, Schedule F, a K-1, or as an S-corp owner, you’re in the right category. (Note: C-corporation owners are technically employees of their corporation, so they aren’t “self-employed” – but they can still get premiums deducted through the corporation, which we’ll cover later.)
No other employer coverage available. If either you or your spouse was eligible to enroll in a subsidized employer-sponsored health plan at any point in the year (even if you declined it), you generally cannot claim the deduction for the months you were eligible for that plan. This rule prevents double-dipping. For example, if your spouse’s job offers family health insurance that could cover you, then during those months you can’t take the self-employed premium deduction for a separate policy you buy on your own. The IRS looks at this on a month-by-month basis. (Important: “Employer plan” includes your own day job’s plan or a spouse’s plan. However, Medicare or VA coverage is not considered an employer plan – more on that nuance below.)
You have a positive business profit to deduct against. The deduction cannot exceed your earned income from the business that is providing the health coverage. In simple terms, your business must generate enough profit to cover the premiums. If your business had a loss or very low net income, you won’t be able to deduct premiums (or you’ll be limited to deducting up to the amount of net profit). For sole proprietors, this means your Schedule C profit (Line 31) must be at least as much as the premiums you’re trying to deduct. For partnerships and S-corps, similar logic applies based on your share of income or W-2 wages (discussed later). You can’t use the health insurance deduction to create or deepen a business loss.
Policy is in your name or business’s name. The health insurance policy can be either in the name of the business or in your personal name, but it must be for coverage in the same year and for eligible persons (you, spouse, dependents, or any child under age 27 at year-end). The IRS is flexible on whether the plan is “established under the business” – for sole proprietors, a policy in your personal name is fine. For partnerships or S-corps, often the business will arrange the policy or reimburse you to tie it to the company (more on those specifics in entity sections below).
You actually pay the premiums (and don’t double deduct them). You must have paid the premiums out-of-pocket (or via your business). If you’re using this deduction, you cannot also claim those same premiums as an itemized medical expense deduction on Schedule A. (No double-dipping – you have to choose one or the other, and the self-employed above-the-line write-off is usually far more valuable and easier to qualify for than itemizing medical expenses). Also, if you received a tax credit or subsidy for your premiums (for example, an Affordable Care Act premium tax credit on a Marketplace plan), you can only deduct the net amount you paid – not the part covered by the credit.

If you meet these requirements, congrats – you can take advantage of the deduction! Now let’s look at how it works in practice for different types of business owners.

Which Insurance Premiums Are Eligible?

The term “health insurance premiums” in this context is fairly broad. Eligible premiums that a small business owner can deduct include:

Medical and surgical health insurance premiums for you, your spouse, and your dependents. This is the core – any typical health plan premiums you pay for coverage (whether it’s an individual plan you bought from Healthcare.gov or a private insurer, or a group plan your business set up) count toward the deduction.

Dental and vision insurance premiums. If you pay separate premiums for dental or vision coverage, those are deductible too under the self-employed health insurance rule.

Qualified long-term care (LTC) insurance premiums – with a catch. You can deduct LTC insurance for you and your spouse, but unlike regular health insurance, the IRS caps the deductible amount based on your age. These limits adjust each year. For example, for the 2024 tax year a person in their 50s can deduct up to $1,760 of long-term care premiums, someone in their 60s up to $4,710, and over 70 up to $5,880, even if actual premiums paid were higher. These caps are per person and increase with age. So yes, you can include long-term care insurance in the deduction, but be mindful of the limits.

Medicare premiums you voluntarily pay. If you’re a self-employed individual enrolled in Medicare, the premiums for Medicare Part B, Part D, or a Medicare Advantage plan (Part C) are all deductible as health insurance, just like private insurance premiums. (Medicare Part A is usually free if you paid into the system, but if for some reason you pay Part A premiums, those count too.) This was clarified by IRS rulings – even though Medicare isn’t an employer plan, it is health insurance you’re paying for, and self-employed folks can deduct it. For example, a 68-year-old consultant who is on Medicare and runs a small business can deduct the monthly Part B and Part D premiums (as long as they have no other employer coverage available and business income to cover it).

What’s not eligible? Primarily, any insurance that isn’t for medical care. For instance, life insurance premiums are not deductible as health insurance. Disability insurance premiums (for a policy that pays you if you’re unable to work) are also not considered health insurance for this deduction. And again, any premiums that were already paid or reimbursed by an employer or another tax-free plan can’t be counted.

How Sole Proprietors and Single-Member LLCs Deduct Health Insurance

If you’re a sole proprietor, independent contractor, or single-member LLC (treated as a disregarded entity), writing off your health insurance is straightforward once you know where to do it. You don’t actually take the deduction on your business Schedule C or LLC filings directly – instead, you take it on your Form 1040.

Here’s how it works step-by-step:

You pay your health insurance premiums during the year, either out of your personal funds or from a business account. It doesn’t matter which, as long as you’re not getting them pre-tax elsewhere.

When you do your taxes, you do NOT list those premiums as an expense on Schedule C (or F, or E for that matter). Health insurance for the owner isn’t deducted on Schedule C like rent or supplies would be. Instead, you claim it on Schedule 1 of Form 1040, Part II (Adjustments to Income), on the line for “Self-employed health insurance deduction.” This line (for 2024, it’s Schedule 1, Line 17) is where you put the amount of premiums you’re allowed to deduct.

The deduction then lowers your adjusted gross income (AGI) on page 1 of your Form 1040. You get the benefit whether or not you itemize deductions, because it’s an “above-the-line” deduction. Lower AGI can also potentially help you qualify for other tax benefits (since many credits and deductions phase out with income – a lower AGI can keep more of those in play).

Limitation: As mentioned, you can only deduct up to the amount of net profit your sole proprietorship earned. For example, say you run a solo consulting business. After tallying income and expenses on Schedule C, you have a net profit of $5,000 for the year. You also paid $6,000 in health insurance premiums for yourself. In this case, your self-employed health insurance deduction will be limited to $5,000 – you can’t deduct the extra $1,000 because you didn’t have enough business income to cover it.

The remaining $1,000 of premiums is just nondeductible (though you could potentially count it toward an itemized medical deduction if you itemize, but only amounts above 7.5% of AGI count there – often not useful). On the flip side, if your business profit was $50,000 and you paid $6,000 in premiums, you can deduct the full $6,000 above the line.

Example: Jane is a freelance graphic designer with a single-member LLC. In 2025, her business Schedule C shows a net profit of $20,000. She bought her own health insurance through the Marketplace, paying premiums of $500 per month ($6,000 for the year).

Jane has no other coverage available and meets all the qualifications. She will claim a $6,000 self-employed health insurance deduction on Schedule 1 of her 1040, reducing her AGI to effectively $14,000 (plus any other income). This could save her a significant chunk in federal income tax, and possibly state tax too – effectively making her health insurance premiums tax-free. If Jane’s net business profit had been only $4,000, she’d be limited to a $4,000 deduction and would eat the rest of the cost without a deduction.

Tip: You don’t need to have a formal “business health plan” for a sole proprietorship; the IRS doesn’t require the policy to be under a business name. A policy in your personal name qualifies as long as you’re self-employed and paying for it. It’s a fairly user-friendly setup for solos.

Health Insurance Deductions for S-Corporation Owners (2% Shareholders)

If your small business is structured as an S corporation, the process to deduct health insurance is a bit more complicated. S-corp owners (specifically those who own >2% of the company’s stock) are considered “owner-employees” and by law cannot receive tax-free health insurance directly through the corporation like a regular employee could. But don’t worry – there is a way to still get the deduction; it just involves some payroll accounting.

Here’s how S-corp owners can deduct their premiums:

Have the S-corporation pay your health insurance premiums directly, or reimburse you for the premiums you paid personally. The key is that the corporation should ultimately bear the cost (even if initially you paid the bill, the company should reimburse you by year-end). You’ll want to book this in your accounting records distinctly – often in an account for “owner’s health insurance” separate from regular employee benefits.

At year-end, the premiums paid on behalf of the >2% owner must be reported on the owner’s W-2 form. The amount of the health premiums is added to your Box 1 (taxable wages) and reported in Box 14 (often labeled something like “Health Ins. $X”). This inclusion makes the premium amount taxable as wage income for federal and state income tax purposes. However – and this is important – those premium amounts are not subject to Social Security or Medicare (FICA) taxes if done correctly. In other words, the S-corp can treat it as additional compensation to you that’s exempt from FICA. So your W-2 will show a slightly higher taxable wage (by the amount of premiums), but your FICA wages remain the same. This satisfies IRS requirements that shareholders can’t get a tax-free fringe benefit directly.

The S-corporation deducts the insurance cost on its own return as part of employee compensation (just as it would for wages). So the business usually gets a deduction for that expense. (This effectively washes out any corporate income impact since the owner is picking it up as income.)

Now, when you (the owner) file your personal 1040, you take the self-employed health insurance deduction for that premium amount, on Schedule 1 just like a sole proprietor would. The amount you include is exactly the premiums that were reported as wages to you. This above-the-line deduction then cancels out the additional taxable wages from the health insurance. The end result: you don’t pay federal income tax on those premiums, which is what we want. The deduction has effectively made them tax-free (you paid initially via the W-2, then got it back via the deduction).

To visualize: Suppose your S-corp paid $8,000 in health insurance premiums for you in 2025. If your regular salary was $60,000, your W-2 would show $68,000 in Box 1 wages. You’d pay income tax on $68k on paper, but then you’d deduct $8,000 on Schedule 1, line 17, bringing your taxable income back down by that amount. Social Security and Medicare taxes would only apply on the $60k (since the $8k was noted and exempted). This way, you achieve the same outcome as a sole proprietor – a full deduction of your premiums against income tax – just via a two-step process.

Critical caution for S-corps: If you fail to do this W-2 inclusion properly, you cannot legally take the self-employed health insurance deduction. The IRS position is that the health plan must be “established by the business.” Having it paid and reported through the S-corp is how you establish that. For example, if you as an S-corp owner just pay for your family’s insurance personally all year and never involve the S-corp (no reimbursement, no W-2 reporting), then at tax time you try to take the deduction on your 1040 – technically you aren’t allowed to, because the premiums weren’t paid by the company or included in wages. This is a common mistake. Always run the premiums through the S-corp’s books and W-2. Many payroll providers will help handle this if you let them know you have shareholder health insurance to report at year-end.

Another point: If your S-corp has other employees besides you, you do not have to offer them health insurance just because the company pays yours. Offering coverage to non-owner employees is a separate decision (though if you have a lot of employees, consider the Affordable Care Act rules – companies with 50+ full-time employees must offer health insurance or face penalties, but if you’re under that threshold, you can choose whether to offer). The owner’s ability to deduct their own premiums is not contingent on offering a group plan to everyone. For many small S-corps with just one or a few owners and maybe a handful of employees, it’s common for the company to only cover the owners’ individual policies.

However, beware: If you do have other employees and you reimburse only the owner’s individual insurance without a formal group plan or HRA for others, you want to ensure you’re not running afoul of ACA market reform rules. Generally, reimbursing an owner’s own plan is fine (since owners aren’t considered employees for benefit purposes), but reimbursing rank-and-file employees’ individual plans outside of a proper arrangement (like a Qualified Small Employer HRA) could trigger penalties. So if you have employees and want to help with their insurance, look into formal small group plans or HRAs. But strictly for the >2% shareholder’s own policy, the procedure above is acceptable.

Bottom line for S-corps: You get the deduction, but follow the steps: Company pays or reimburses premiums → include in W-2 Box 1 (no FICA) → owner deducts on 1040. Done correctly, it’s as good as a direct deduction. Done incorrectly, the IRS could disallow the deduction (and possibly reclassify the payments).

Partners in a Partnership (or LLC Treated as a Partnership)

If you are a partner in a partnership or a member of an LLC that’s taxed as a partnership, you are also considered self-employed (you’re not an employee of the partnership for tax purposes, even if you work in the business). This means you too can take the self-employed health insurance deduction for premiums, but the mechanics differ slightly and involve your K-1 and partnership agreements.

Here’s how it generally works for partners:

The partnership can pay the health insurance premiums for the partners as a business expense. Often, partnerships will either pay the insurance company directly or reimburse the partner for premiums paid personally.

If the partnership pays (or reimburses) the premiums, it will typically treat that amount as a guaranteed payment or as additional taxable distribution to the partner. In practical terms, the partner gets taxed on that money as if it was income from the partnership. For example, the partnership might book the partner’s $5,000 of health premiums as a guaranteed payment (which is like a salary for partners) – that $5k then appears on the partner’s Schedule K-1 as taxable income.

If the partner pays the premiums personally, an alternative approach is that the partnership can add that amount to the partner’s draw and still treat it as though it was a guaranteed payment in the books (even if cash didn’t go through the partnership). Either way, it ends up on the K-1 as income to the partner. The IRS’s concern is that the plan be considered established under the business. One way to show that is for the partnership to formally reimburse the partner or pay the premiums. Another way accepted is if the policy is in the partner’s name, the partnership can still treat the premium amount as a guaranteed payment reported on K-1. That signals that the partnership effectively “funded” the premium.

The partner then, on their personal return, claims the self-employed health insurance deduction for those premiums, up to the amount of their share of partnership earnings. This works much like the sole prop: it’s an above-the-line deduction on the 1040. The same limitations apply – you can’t deduct more than your partnership income from that partnership. If the partnership had a loss or very little profit allocated to you, your deduction gets limited accordingly.

In summary, being a partner doesn’t stop you from deducting health insurance; it just means you have to coordinate with the partnership’s accounting. Both scenarios – partnership pays or partner pays – can result in a valid deduction, as long as the premiums are ultimately included in the partner’s taxable income from the partnership (so that the deduction isn’t coming out of nowhere).

This is something to discuss with your accountant or tax preparer when you’re a partner. Often, partnerships include a line on the Schedule K-1 (Line 13 with code M in many cases) showing the partner’s health insurance premiums that were included in income, which cues the partner to deduct that amount on their 1040.

Example: Mike and Sara are equal partners in an architecture firm (a partnership). The partnership’s operating agreement states that the business will cover health insurance for both partners. In 2025, the partnership paid $12,000 for Mike’s family health insurance. On Mike’s K-1, that $12,000 is listed as a guaranteed payment (in addition to his share of the profits).

Mike will report the $12k as part of his income from the partnership, but then on his personal tax return, he’ll also deduct $12,000 as self-employed health insurance. If the partnership didn’t pay directly, imagine Mike paid out-of-pocket and the partnership just bumped his profit share or marked it in the K-1 footnotes – as long as Mike’s K-1 includes that $12k in income (and he has at least $12k of partnership earnings overall), he can take the deduction. The result: Mike effectively pays no income tax on that $12k, saving him money.

One more nuance: If you’re a managing member of an LLC taxed as a partnership, the IRS views you the same as a general partner. So all this applies equally to LLC members in multi-member LLCs.

C-Corporations and Health Insurance (a Different Animal)

What if your small business is a C-corporation (or an LLC taxed as a C-corp)? In that case, you as the business owner are likely an employee of the corporation (for tax purposes). C-corps follow a different set of rules: a corporation can provide health insurance to its employees (including you) as a tax-free fringe benefit, and the corporation can deduct the cost as a business expense.

In essence, a C-corp can do what big companies do – pay for health insurance and not treat it as taxable income to the employee, as long as certain nondiscrimination requirements are met for health plans. You don’t use the “self-employed health insurance deduction” on your 1040 for corporate-paid premiums. Instead, the corporation deducts the premiums on the corporate tax return (Form 1120), and you simply don’t include those premiums in your wages.

For example, if you own 100% of ACME Inc., a C-corp, and the company provides a health insurance plan covering you (and perhaps any other employees), the corporation pays the premiums (say $10,000/year for your policy). The $10k is a deductible business expense to ACME Inc. Meanwhile, you as an employee do not get that $10k added to your W-2 – it’s excluded under the tax rules for employer-provided health benefits. In this scenario, the end result is similar: the $10k is effectively paid with pre-tax dollars (deducted by the company, not taxed to you). No need for an extra deduction on your personal return, since you never counted it as income in the first place.

This is one reason some small businesses elect C-corp status if they can fully deduct things like health insurance and other fringe benefits at the corporate level – especially if the owner can keep their personal income relatively low. However, C-corps have their own pros/cons (double taxation on profits, etc.) that go beyond our scope. The main takeaway is:

If you’re a C-corp owner-employee, make sure the corporation is paying for your insurance directly and treating it as a business expense. You as an individual then cannot deduct those premiums on 1040 (nor should you need to). If you for some reason paid personally, the corporation could reimburse you and take the deduction, achieving the same result. It’s usually best for the company to have the policy in its name if possible.

State an example for clarity: John is the sole shareholder of a small C-corp and also works as its president. The company offers a group health plan that covers John and his two employees. The corporation pays $15,000 in premiums for John’s family coverage for the year. On the corporate tax return, that $15k is included in “employee benefit programs” expense. John’s W-2 does not include any portion of that $15k as income. John gets no separate deduction on his Form 1040 – but effectively the result is that $15k was a pre-tax expense paid on his behalf. If John also had some premiums he paid out-of-pocket for coverage outside the company plan, those wouldn’t be deductible (and if he has a company plan available, he probably shouldn’t be paying separately anyway).

Nondiscrimination note: If a C-corp has multiple employees, it typically can’t just buy health insurance for the owner and exclude other workers without potentially violating health plan nondiscrimination rules (especially if it’s a self-insured plan). Fully insured small group plans have been somewhat exempt from certain ACA nondiscrimination rules (which have been delayed), but in general, if you have full-time staff, it’s wise to offer them access to the plan if you’re taking it yourself as an owner, to avoid morale and legal issues. For a one-person C-corp (where you’re the only employee), you can definitely deduct your own premiums (the corporation deducts, you exclude it).

To summarize: All business types can get a tax-advantaged outcome for health insurance – the mechanism just differs:

Sole prop/Single LLC: Deduct on 1040 directly.
Partnership: Deduct on 1040, but include in K-1 income first.
S-corp: Deduct on 1040, but run through W-2 wages first.
C-corp: Deduct at the corporate level, exclude from 1040 entirely (since it’s never income to you).

We’ve covered the federal basics. Next, let’s talk about state taxes, because many owners ask: “Do I get the same deduction on my state return?”

State-Level Nuances: How States Treat Health Insurance Deductions

When it comes to state income taxes, the picture is generally favorable but can vary by location. In most cases, states follow the federal lead on the self-employed health insurance deduction, but there are a few wrinkles to consider:

Most states use federal AGI as a starting point. If your state’s tax return begins with the federal Adjusted Gross Income, then any above-the-line deductions (like the health insurance deduction) you took federally will already reduce your state taxable income. For example, if you deducted $10,000 of premiums on your federal return and your federal AGI went down by that amount, your state AGI (if it starts from federal) is also $10k lower, automatically giving you the benefit on your state taxes too. States like New York, Illinois, California, and many others use federal AGI as the baseline, so you generally don’t need to do anything extra – you’ve effectively gotten the deduction for state as well.

A few states have their own calculations. Some states don’t follow federal AGI to the letter, or they have their own rules for certain deductions. For instance, New Jersey doesn’t use federal AGI and instead has its own definition of income (NJ doesn’t allow many above-the-line adjustments that the federal return does). However, New Jersey does allow a deduction for medical insurance premiums for the self-employed in its own way – as of recent years, NJ lets you deduct health insurance premiums as a business expense on your NJ return if you’re self-employed, even though they don’t start from federal AGI.
- Pennsylvania is another state with unique tax rules (PA has very limited deductions – I believe health insurance for self-employed might not be separately deductible under PA’s flat tax system, since they tax net profits without the federal adjustments). The key is to check your state’s instructions. In most states, no additional action is needed if you took the deduction federally. In some, you might have to enter an adjustment or you might find the state disallows it and you have to add it back.

State-specific health insurance credits or programs. On top of tax deductions, some states offer credits or subsidies to small businesses for health insurance. For example, Massachusetts had a program related to its state health reform (pre-ACA) that gave certain small employers a break, and some states have their own version of small business health care tax credits or marketplace subsidies. These won’t usually affect how you deduct premiums on taxes, but they’re good to be aware of.
- If your state gives you a tax credit for health insurance paid, you typically can’t double claim a deduction for the same expense (the credit usually is more valuable anyway). These programs are less common, but worth noting if your state legislature has acted on small biz health costs.

State mandates and deductions: A few states (like Massachusetts, New Jersey, California, D.C.) have individual health insurance mandates (requiring residents to have coverage or pay a penalty). As a small business owner, if you’re paying your own premiums, you’re likely satisfying those mandates. In some cases, there are state-level deductions for certain health contributions (e.g. Massachusetts allows a deduction for certain health insurance payments if you’re not otherwise covered by employer plan). Again, these are highly state-specific.

In short, for the vast majority of small business owners, the health insurance deduction flows through to the state return beneficially. Always glance at the state tax instructions or ask a tax pro if in doubt. If you find that your state doesn’t allow the deduction, you’ll want to calculate the difference – but that scenario is relatively rare and usually only in states with alternative income tax computations.

The rest of our discussion will assume federal rules, since that’s the main hurdle. But don’t forget that lowering your federal AGI likely helped your state taxes too, effectively giving you a double win in most locales.

Mistakes and Pitfalls to Avoid When Deducting Health Insurance

Taking the self-employed health insurance deduction can yield great benefits, but there are pitfalls. Small business owners should be careful to avoid these common mistakes and misconceptions:

🚫 Claiming the deduction while eligible for another plan: This is a big one. Remember, if you or your spouse could have been on a subsidized employer plan, you can’t take the deduction for those months. The IRS will disallow the write-off if they discover, for example, that you had a full-time job offering health insurance for part of the year (or your spouse did) and you still tried to deduct a private plan. Plan your deduction on a month-by-month basis. If you left a job mid-year and lost coverage, you can deduct premiums for the remaining months only. If your spouse gains a job with insurance eligibility, that might cut off your deduction eligibility moving forward. Be honest about this – it’s a yes/no question on the tax form software when claiming the deduction.

🚫 Not having sufficient business income: As noted earlier, you can’t deduct more in premiums than your business earns. Some entrepreneurs mistakenly try to write off a full year of hefty insurance premiums even though their business operated at a loss. The software or IRS will cap it at your net profit or zero it out. Don’t try to sneak in excess; instead, see if itemizing medical expenses is possible (often it isn’t, unless your premiums and other medical costs are huge relative to income).

🚫 S-corporation reporting mishaps: If you have an S-corp, failing to run the premiums through payroll is a common error. Some owners pay personal insurance and then deduct on 1040 without reflecting it on W-2 – technically incorrect. Also, some S-corp owners erroneously think they can pay their premiums through a Section 125 cafeteria plan pre-tax.
- (Under IRS rules, >2% S-corp shareholders cannot participate in a tax-free Section 125 plan for their own insurance – they have to use the wages-and-deduction method, not a salary reduction). So avoid the pitfall of thinking “I’ll just exclude my insurance from my paycheck pre-tax.” That works for regular employees, not for an owner with >2% shares. Follow the proper steps for compliance, or risk losing the deduction if audited.

🚫 Deducting premiums that were actually covered by someone else: Double-check if any portion of your premiums was paid by an advanced premium tax credit (APTC) or any government subsidy. Sometimes, if you buy insurance on the Marketplace and qualify for subsidies, the government pays part of your premium directly to the insurer. You can only deduct the portion you paid. For instance, if your total premium was $1,000/month but you received a $400/month subsidy, you effectively paid $600 – only that $600 is deductible. Don’t accidentally deduct the full $1,000 in that case. The IRS does cross-check with Form 1095-A / Form 8962 information for those using ACA credits.

🚫 Mixing up employee vs. owner expenses: If your business also pays premiums for your employees’ health insurance, those premiums are not part of your self-employed health insurance deduction. Instead, that’s just a normal business expense (e.g., on Schedule C, it goes under “Employee benefit programs” or similar). The self-employed health insurance deduction is specifically for covering the owner (and family). So, don’t confuse the two. Deduct employee coverage on the business return, owner coverage on the personal return (except C-corps, which do it all on the business side).

🚫 Forgetting to adjust for partial-year situations: If you start or end your business during the year or if your insurance policy covers only part of the year, ensure you’re only deducting the appropriate months. For example, you commence business in July and prior to that you had no business – only premiums paid from July onwards (when you were self-employed) would count. Or if you close the business before year-end and go take a job with insurance, you stop deducting as of the switch.

🚫 Lack of documentation: Always keep proof of your premiums paid (invoices, bank statements, 1095 forms, etc.). While you don’t submit these with your return, you’ll want them if the IRS inquires. Also, if you’re doing an S-corp or partnership scenario, keep records of the reimbursement and W-2 or K-1 entries to show you followed the procedure.

🚫 Ignoring ACA compliance when you have employees: As mentioned, don’t try to reimburse employee health premiums on the sly. After the Affordable Care Act, stand-alone reimbursements (outside of a group plan or qualified HRA) to employees for health insurance can trigger excise taxes ($100 per day per employee). Use solutions like a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) if you have fewer than 50 full-time employees and want to help employees with their own insurance – QSEHRA allows reimbursements up to set limits, tax-free, legally. Just avoid the mistake of giving employees extra pay for health costs without a plan – it could become taxable and penalized.

By steering clear of these pitfalls, you’ll ensure you actually get to enjoy the tax savings intended and keep the IRS happy.

Examples: How Health Insurance Deductions Work in Practice

To make this more concrete, let’s look at a few common scenarios for small business owners and how deducting health insurance would play out in each. This will illustrate the differences between business types and the steps required.

Scenario	How the Deduction Works
Solo Sole Proprietor (no employees, files Schedule C) Example: Alice is a freelance photographer.	Alice pays health insurance premiums for herself and her two kids. She has no other coverage options. At tax time, she checks her Schedule C net profit – say it’s $30,000. She can deduct 100% of her premiums (for herself and dependents) up to that $30k profit. She enters the amount on Schedule 1, line 17 of her 1040. This lowers her taxable income. The deduction is straightforward; no need to file any special forms beyond the standard 1040 and Schedule C. Alice’s premiums effectively become a business expense (though they don’t show up on Schedule C, the effect is similar via the adjustment to income).
S-Corp Owner-Employee (>2% shareholder of an S-corporation) Example: Bob owns 100% of an S-corp consulting firm.*	Bob’s S-corp pays his health insurance premiums (family coverage). Each payroll, or at least at year-end, the company reports those premium amounts on Bob’s W-2 form (Box 1 and Box 14). Let’s say $10,000 in premiums for the year. The $10k is added to Bob’s taxable wages on paper. The S-corp deducts the $10k on its 1120S return as part of wages/benefits. Bob then takes a $10,000 deduction on Schedule 1 of his Form 1040 for self-employed health insurance. This offsets the additional W-2 income. In the end, Bob pays no income tax on that $10k. (He also did not pay payroll tax on it, since it was exempt from FICA.) It’s as if the S-corp gave him a tax-free benefit, but the proper paperwork makes it happen via this wage-and-deduct mechanism. Important: If Bob forgets to include it on the W-2, he loses the deduction – so he must handle it correctly.
Partnership Partner (or LLC member taxed as partnership) Example: Carla is a 50% partner in a two-person partnership.*	Carla buys a health insurance policy for herself through the ACA Marketplace. The partnership agreement states that health premiums for partners are a business expense. The partnership either pays Carla’s premiums or reimburses her, and records that amount (say $7,000/year) as a guaranteed payment to Carla. On her Schedule K-1, Carla sees an extra $7,000 in income noted for health insurance. The partnership deducts that $7k on the partnership return as an expense. On Carla’s personal 1040, she claims a $7,000 self-employed health insurance deduction (again on Schedule 1). That reduces her taxable income. As long as the $7k doesn’t exceed her partnership earnings for the year (and she wasn’t eligible for any other coverage), she gets the full benefit. If the partnership had a loss, she couldn’t deduct it (similar to the sole prop situation). The key is that the partnership “pushed” the income to her, and she “pulls” the deduction on her return.

These scenarios cover the vast majority of small business setups. Notice that in all cases, the ultimate effect is to make the health insurance premium amount tax-deductible either on the business return, the personal return, or both, so that the owner isn’t paying income tax on those dollars.

For completeness, let’s mention a variant scenario: Spousal employee arrangement. This is where, say, a sole proprietor employs their spouse in the business and provides health insurance that covers the whole family under the spouse’s coverage. In that case, the premiums can be deducted on Schedule C as a business expense (since they’re technically an employee benefit for the spouse-employee), rather than using the self-employed health insurance line. This was a strategy especially common among small family businesses and farmers: make the spouse an employee, get a family health plan in the spouse’s name, deduct it as an employee benefit on the business. This effectively covers the owner too (as part of the family).

The IRS has challenged some of these in the past if they felt the spouse wasn’t a bona fide employee or the compensation wasn’t reasonable, etc. But if done properly, it’s valid. The self-employed health insurance deduction we discuss in this article is the route for when you, the owner, are directly the one taking the deduction. Employing a spouse is a creative twist that actually moves the deduction onto Schedule C (or F) as an ordinary business expense for wages/benefits.

If you’re in that situation, just ensure you really treat your spouse like an employee (pay a wage, withhold taxes, etc.) and have the paperwork for the plan. Many small biz owners do this to deduct family coverage, and courts have upheld it when the arrangement is real (more on a court case about this soon).

Now that we’ve seen examples, you might wonder: are there other ways to save on health insurance costs or alternative tax breaks? Let’s briefly compare this deduction to some other options.

Comparing Options: Deduction vs. Other Health Coverage Tax Breaks

Small business owners have a few different tools and strategies related to health insurance. How does the self-employed health insurance deduction stack up, and what other avenues exist? Here are a few comparisons and complementary strategies:

Deduction vs. Itemized Medical Deduction: We touched on this, but to reiterate – the self-employed health insurance deduction is far superior for most people than trying to deduct premiums as an itemized deduction. Itemizing medical expenses on Schedule A only helps if your total medical expenses exceed 7.5% of your AGI (and even then, only the excess above that threshold is deductible). Plus you have to forgo some of your standard deduction to itemize at all.
- In contrast, the self-employed health insurance deduction is an above-the-line deduction: no AGI floor, no need to itemize. It directly reduces AGI and thus taxable income. So, a self-employed person should almost always use the special deduction for their premiums rather than include those premiums in an itemized medical list.
- Example: If Luke has $10,000 of premiums and $40,000 AGI, itemizing would only allow a $7,000 deduction (the amount over 7.5% of $40k, which is $3k floor). But using the self-employed above-line deduction, he deducts the full $10k. Big difference.

Deduction vs. Small Business Health Care Tax Credit: The Small Business Health Care Tax Credit is a federal credit available to certain small employers who provide health insurance to their employees and meet strict criteria (generally, you need fewer than 25 full-time equivalent employees, pay average wages below a certain threshold – around $56k per worker in 2024 – and you must purchase coverage through the SHOP Marketplace and pay at least 50% of employees’ premiums).
- This credit is up to 50% of the premiums paid for employees (35% for non-profits). Importantly, owners and their family members are not counted as employees for the credit, and you can’t take a credit for your own coverage as the owner. So this credit is really to incentivize employers to cover their staff. If you do qualify for and claim this credit, you cannot also deduct those same premium payments as a business expense – you’d reduce your deduction by the credit amount. This credit doesn’t affect the self-employed health insurance deduction for your personal policy; it’s a separate thing.
- But for thoroughness: If you’re a one-person business with no employees, this credit is not on the table. If you have a couple of employees, you might explore it, but it’s fairly limited and only applies for two years of coverage. In contrast, the self-employed health insurance deduction has no such time limit or employee requirement – it’s available every year you qualify.

Using a Health Savings Account (HSA): HSAs are a different type of tax benefit related to healthcare. If you have a high-deductible health plan (HDHP) as your insurance, you can contribute to an HSA. Money you put in an HSA is tax-deductible (above-the-line) or pre-tax if through payroll, and withdrawals for medical expenses (including some premiums like COBRA or Medicare premiums) are tax-free. However, HSA funds generally cannot be used to pay health insurance premiums while you’re under age 65 (except some limited cases like COBRA or unemployment).
- So you can’t, for example, use HSA money to pay your monthly Marketplace premium in the current year. That means HSAs and the self-employed health insurance deduction don’t directly overlap or conflict – they cover different costs (HSA covers out-of-pocket medical expenses primarily). Both can be used: you could deduct your premiums via the SEHI deduction and also contribute to an HSA to deduct/save for medical expenses like copays and prescriptions. They’re complementary tax breaks. Just remember HSA isn’t for paying regular premiums (with a few special-case exceptions).

Health Reimbursement Arrangements (HRAs): If you have a small business with employees and you don’t want to offer a group plan, one option is a Qualified Small Employer HRA (QSEHRA) or an Individual Coverage HRA (ICHRA). These allow an employer to reimburse employees for insurance premiums (and/or other medical expenses) up to a set annual limit, without offering a group health plan. The reimbursements are tax-free to employees and deductible to the business.
- However, an owner who is a >2% S-corp shareholder cannot receive HRA reimbursements tax-free (similar to other fringe benefits). C-corp owners can. If you’re a sole prop with employees, a QSEHRA can effectively let you reimburse employees for premiums (tax-free) while you continue to deduct yours separately. The main point here: these arrangements are alternatives to directly paying premiums or to formal group insurance, and they have their own pros/cons and administrative requirements. They don’t give you a better deduction on your personal return than the SEHI deduction – they’re more about how to help employees and possibly yourself if you’re structured to benefit.

Retirement account vs. health insurance deduction: This isn’t a direct comparison, but sometimes small business owners face limited cash and wonder “should I put money into a retirement plan or pay for health insurance (or which yields better tax savings)?” Ideally, you do both – health insurance is critical and the deduction helps reduce its net cost, and retirement contributions (to SEP IRA, Solo 401k, etc.) are also deductible. One nuance: The self-employed health insurance deduction does not reduce your self-employment tax, whereas a business expense would. It only reduces income tax. In contrast, a SEP IRA contribution reduces both income and self-employment tax?
- Actually, correction: a SEP IRA is also an above-the-line deduction (not a business expense), so it too doesn’t reduce SE tax. But an S-corp’s health premiums included as wages would be subject to state and fed unemployment maybe, but not FICA; a Solo 401k deduction doesn’t reduce SE tax either except the half of payroll contributions if via S-corp wages can reduce FICA wages. This is getting into the weeds. The gist: health insurance deduction is great for income tax savings, but you’ll still pay SE tax on your net profit as calculated before this deduction (because it’s on the 1040 after calculating SE tax). This is just a quirk of how the forms work: for a sole prop, your self-employment tax is based on Schedule C profit, which is not directly reduced by the health ins deduction (since that deduction is on the 1040, not the Schedule C).
- So you are still paying Social Security/Medicare taxes on that income. By contrast, an S-corp owner’s strategy of including premiums in wages does subject them to income tax (temporarily) but not to FICA. So there is a subtle advantage there: S-corp owners avoid payroll tax on health premiums, whereas sole props cannot avoid SE tax on the profit used to pay health premiums. However, I wouldn’t recommend choosing entity type solely on that – it’s just a consideration. For one person with $10k premiums, the difference is on the order of $1,500 in SE tax vs. maybe saving that if S-corp (but S-corp has its own costs).

In summary, the self-employed health insurance deduction usually stands on its own as the primary tax benefit for your health premiums. Make sure you maximize it before worrying about other medical tax strategies. If you have employees, consider credits or HRAs as additional moves. If you have an HDHP, use an HSA to augment your tax-advantaged healthcare strategy. But none of those replace the core deduction – they supplement it.

Now, having covered practical aspects and comparisons, let’s turn to some legal insights. What have the courts said about small business owners deducting health insurance? There have been a few notable cases, especially around spousal employment and IRS challenges.

Lessons from Courts and IRS Rulings on Health Insurance Deductions

Through the years, the rules on deducting health insurance for small business owners have been refined by IRS rulings and a handful of court cases. Here are a few relevant rulings and what we’ve learned from them (don’t worry, we’ll keep it concise and relevant):

The Shellito Case (T.C. Memo 2010-41, reversed on appeal 2011): This tax court case became famous among small business tax circles because it dealt with a farmer, Milo Shellito, who employed his wife on the farm and set up a plan to reimburse her for family medical expenses and health insurance. The IRS denied the deductions at first, arguing that the wife wasn’t truly an employee (since historically she hadn’t been paid, and the insurance was in the husband’s name, etc.), and the Tax Court initially sided with the IRS. They said basically “this looks like you’re just trying to convert personal expenses to business expenses without a real employment relationship.”
- However, the Shellitos appealed to the U.S. Tenth Circuit Court of Appeals – and won. The appellate court vacated the Tax Court’s decision, instructing that a proper common-law employment test should be applied. They noted that if the wife legitimately performed services and was compensated (even largely via the medical plan), she could be a bona fide employee, making the reimbursements deductible. The Tenth Circuit even pointed out that the IRS had inconsistently allowed similar setups in at least six prior cases when certain criteria were met.
- The end result: The case validated that a sole proprietor can employ their spouse and cover the whole family’s insurance through that spouse, deducting it on Schedule C, provided the arrangement is genuine. The Shellito case taught small businesses that if you want to do this, you must: pay the spouse a reasonable wage, actually implement a reimbursement plan or policy (in Shellito’s case they used a formal plan called AgriPlan/BizPlan), keep good records (the wife logged hours worked, etc.), and make sure the transactions are handled correctly (premiums ideally in the spouse’s name or at least reimbursements documented). When done right, the courts have allowed the deduction. When done sloppily, the IRS can disallow it. So the deduction can cover your whole family even if you’re not the one on the policy – but structure is key.

S Corporation Guidance (IRS Notice 2008-1): The IRS has issued specific guidance for S-corp health insurance. Notice 2008-1 basically outlines the procedure we described: the S-corp must report premium amounts on the shareholder’s W-2, and then the shareholder can deduct it on their 1040. It clarified that the plan can be in the name of the shareholder or the S-corp – either is fine as long as the S-corp reimburses and reports it. This notice is why accountants emphasize that year-end W-2 adjustment. If an S-corp fails to do so, the IRS could say those premiums were just personal expenses of the shareholder, not a company plan, thus not deductible. There have been a few IRS audit situations (not necessarily published court cases) where S-corp owners lost the deduction simply because they didn’t follow the Notice 2008-1 rules. The lesson: if you have an S-corp, treat the IRS instructions as gospel to secure your deduction.

IRS Chief Counsel Memo on Medicare Premiums (2012): In 2012, an IRS Chief Counsel Memorandum clarified that Medicare premiums are eligible for the self-employed health insurance deduction. This was a welcome clarification that helped older self-employed individuals. It meant, for example, if a 67-year-old consultant pays $2,000 in Medicare Part B and Part D premiums during the year, and has self-employed income, they can deduct that $2,000 just like any other health insurance. This memo effectively updated the IRS’s stance and later reflected in the Form 1040 instructions. It’s a reminder that the deduction covers a variety of insurance types, not just traditional under-65 health plans.

Cases on “Other Coverage” Eligibility: There have been tax court cases reinforcing that being eligible for other employer coverage kills the deduction for those months. One example (names aren’t important, but scenario is) involved a self-employed person whose spouse had a job with insurance available. The taxpayer didn’t use the spouse’s insurance – they bought their own policy and tried to deduct it. The IRS disallowed the deduction because the taxpayer could have been on the spouse’s plan. The Tax Court agreed with the IRS.
- The takeaway: even if the alternate coverage is expensive or not as good, if it’s available, the law is the law – no deduction for that period. This scenario is common: maybe the spouse’s employer plan would have cost $500/month to add the self-employed person, and the self-employed person instead buys a separate policy for $400/month – thinking they’ll save money and deduct it. Unfortunately, the tax code doesn’t sympathize there; being eligible for the $500/month plan makes the $400/month plan non-deductible. You’d only deduct for any months after that eligibility ended (say the spouse left the job, etc.). Plan accordingly when deciding on coverage choices in a two-earner household.

Court reminders on documentation and substance: In various cases (including some that never made it to full trial because taxpayers conceded), the IRS has stressed that substantiating the deduction is important. This means you should keep proof of payment of premiums and proof of the policy covering who it covers. Also, if using the spousal employee strategy, document that the spouse actually worked and was compensated. If using an S-corp, document corporate resolutions or at least internal memos that the company will pay for shareholder insurance. These don’t have to be submitted with taxes, but in an audit they help show you followed a plan. The courts have little patience for post-hoc justifications – you can’t retroactively decide “oh that personal policy was really under the business.” Set it up through the business from the start.

In essence, the legal landscape supports small business owners taking this deduction, as long as you play by the rules. The IRS provides avenues (like Notice 2008-1) and courts have often sided with taxpayers who correctly implement strategies to maximize the deduction (like employing a spouse). But when corners are cut, deductions get denied. So use these lessons: do things properly, and you’ll likely be fine.

Glossary of Key Terms

To wrap up, here’s a quick glossary of important terms and concepts related to small business health insurance deductions:

Self-Employed Health Insurance Deduction: An above-the-line tax deduction that allows self-employed individuals (sole proprietors, partners, S-corp >2% shareholders, etc.) to deduct health insurance premiums for themselves, their spouse, dependents, and children under 27. It’s taken on Schedule 1 of Form 1040 and reduces taxable income (but not self-employment tax). Often referred to as the health insurance “write-off” for the self-employed.

Above-the-Line Deduction: A deduction that is taken before calculating Adjusted Gross Income (AGI). Above-the-line deductions benefit all taxpayers because they reduce AGI (which can improve eligibility for other tax benefits) and you don’t need to itemize to claim them. The self-employed health insurance deduction is one of these. It appears in the adjustments to income section of the 1040.

Adjusted Gross Income (AGI): Essentially your gross income minus certain above-the-line deductions. It’s a key figure on your tax return (Line 11 of Form 1040 for 2024). Many credits and deductions are limited or phased out based on AGI. The lower your AGI, generally the better for tax purposes. The health insurance deduction lowers AGI, which can have positive ripple effects (for example, possibly increasing an ACA premium tax credit or reducing the taxable portion of Social Security benefits, etc.).

Subsidized Employer Plan: In this context, a health insurance plan in which an employer (yours or your spouse’s) pays a portion of the premium or offers coverage at a group rate. If you or your spouse are eligible to participate in such a plan (even if you decline it), you are considered to have access to a “subsidized employer plan,” which disqualifies you from claiming the self-employed health insurance deduction for the months you could have been covered. “Eligible to participate” is the key phrase; actual enrollment is not required for the limitation to kick in.

2% Shareholder (S-Corp): A person who owns more than 2% of the stock of an S-corporation. The tax code has special rules for >2% shareholders – they are treated as partners (self-employed) for fringe benefit purposes. That’s why health insurance (and other benefits like HSA contributions, etc.) can’t be simply given tax-free to a 2% shareholder. Instead, workarounds like the wage inclusion for health premiums are used. If you own 2% or less, ironically you’re not subject to those rules (but in small businesses, most owner-shareholders exceed 2% stake).

Guaranteed Payments (Partnerships): Payments to partners that are not tied to the partnership’s profits – essentially compensation for services or use of capital, often stipulated in the partnership agreement. Health insurance premiums paid on behalf of a partner are often treated as guaranteed payments to ensure the partner is taxed on that amount, allowing the deduction on the partner’s return. Guaranteed payments are reported on the K-1 and are deductible by the partnership as an expense.

Premium Tax Credit (PTC): A credit under the Affordable Care Act that helps eligible individuals/families pay for health insurance premiums for plans purchased through the Health Insurance Marketplace. It’s income-dependent. If you qualify, it can pay part of your premium. On your tax return, you reconcile the credit on Form 8962.
- For self-employed folks, the PTC and the health insurance deduction have an interesting circular relationship: claiming more deduction lowers AGI, potentially increasing PTC, which then might lower out-of-pocket premiums, which then lowers the deduction. Tax software typically handles this iterative calculation. Just know that you can benefit from both the PTC and the deduction, but you can’t deduct the portion of premium that the credit covered.

SHOP Marketplace: The Small Business Health Options Program – a part of the ACA aimed at small employers (generally under 50 full-time employees) to purchase group health plans. Buying through SHOP is necessary if an employer wants to claim the Small Business Health Care Tax Credit. Sole proprietors with no employees do not use SHOP (that’s just the individual Marketplace for them). If you have, say, 5 employees and want a group plan, SHOP is an avenue to explore. It doesn’t directly affect the self-employed deduction except that if you as an owner are part of a SHOP plan you offer, the company is paying your premium and you’d likely do things under the C-corp or S-corp method we discussed.

QSEHRA (Qualified Small Employer Health Reimbursement Arrangement): A benefits arrangement for employers with <50 full-time employees that allows the employer to reimburse employees for health insurance premiums (and possibly other medical expenses) up to a certain annual limit. It’s a way to help employees pay for their own individual insurance plans with pre-tax employer money. Owners who are >2% S-corp shareholders can’t get reimbursements tax-free (they’d have to count as income), but regular employees can. QSEHRA is often used by small businesses that cannot afford a group plan but want to contribute to employees’ health costs. For an owner with no employees, QSEHRA isn’t applicable – you’d just do the deduction normally.

Family Glitch (fixed in 2023): While not a term directly about deductions, you might hear this regarding ACA and small businesses. It used to be that if a spouse’s employer offered family coverage that was “affordable” for the employee only, the whole family was ineligible for marketplace subsidies even if adding family was expensive – that was the “family glitch.” It was addressed in 2023 to some extent by regulation. But regardless, for deduction purposes, if that employer plan was available, it would still block the deduction (because still “eligible for employer plan”). So unfortunately, even if the family glitch meant no subsidies for you, you also got no deduction if the plan was there. The fix to the family glitch helps more families get ACA subsidies now, but it doesn’t change the deduction rules. I include this term just because small biz owners with working spouses might have encountered it.

Now, with terminology cleared up, you should feel equipped to tackle discussions or further reading on this topic without getting lost in jargon!

FAQ: Small Business Health Insurance Deduction Questions

Finally, let’s address some common questions that small business owners (often on forums like Reddit or in tax Q&As) ask about deducting health insurance. We’ll keep the answers brief and to the point:

Q: Can I deduct health insurance premiums if my business had a loss this year?
A: No. You cannot deduct more in health insurance premiums than your business’s net profit or earned income for the year. If your business operated at a loss (or zero profit), you won’t be able to claim the self-employed health insurance deduction for that year.

Q: I’m self-employed and my spouse has a job with health insurance. I chose to buy my own policy instead of using their plan – can I deduct my premiums?
A: No. If you were eligible to be covered under your spouse’s employer-sponsored health plan, the IRS won’t allow you to take the deduction for a separate policy in those months. Eligibility for any employer-subsidized plan (yours or spouse’s) disqualifies you for the deduction during that time, even if you don’t use that plan.

Q: I have an S-corp. Can the business pay for my health insurance pre-tax?
A: Yes, the S-corp can pay or reimburse your premiums, but it must report those premiums as additional taxable wages on your W-2. Then you can deduct them on your personal return. Done correctly, this results in a full deduction (and you won’t pay Social Security/Medicare tax on the premium amount either). Just remember to run it through payroll – don’t just pay it and forget it.

Q: Does this deduction cover my whole family’s insurance or just me?
A: Yes, it covers your family too. You can deduct premiums you pay for yourself, your spouse, your dependents, and any child of yours who is under age 27 at year-end (even if not a dependent). Family coverage cost is fully deductible under your name as long as you meet the other requirements (business income, no other coverage, etc.).

Q: Do I need to itemize my deductions to write off my health insurance?
A: No. This is an adjustment to income (an “above-the-line” deduction). You claim it separately from itemized deductions. You can take it whether you itemize or take the standard deduction. In fact, most self-employed folks will take the standard deduction and still deduct their health insurance premiums above-the-line.

Q: I got a subsidy (premium tax credit) for my Marketplace health plan. Can I still deduct the premiums I paid?
A: Yes, you can deduct the portion of the premium that you paid out-of-pocket. You cannot deduct the part that was covered by the subsidy. For example, if your total premium was $500 and you received a $200 credit, you pay $300 – you can deduct that $300. The IRS will reconcile to make sure there’s no double dipping with the credit.

Q: Are dental and vision insurance premiums deductible too?
A: Yes. Premiums for dental and vision coverage count as health insurance for purposes of the deduction. You can include those alongside your medical insurance premiums in the total amount.

Q: What about my long-term care insurance premiums?
A: Yes, with limits. You can deduct long-term care (LTC) insurance premiums under this deduction, but the IRS imposes a yearly limit based on your age. The older you are, the more you can deduct (since LTC insurance costs more for older individuals). For example, a person in their 50s can deduct around $1,700+ of LTC premiums in 2024 even if they paid more; any excess isn’t deductible. Make sure to use the age-based limit for the year when calculating your deduction.

Q: If I’m on Medicare and still run a business, can I deduct my Medicare premiums?
A: Yes. Medicare Part B, Part D, and Medicare Advantage plan premiums that you pay can be deducted just like other health insurance, assuming you have self-employment income. Being on Medicare does not count as having an employer plan, so it won’t disqualify you. This is a great benefit for older self-employed folks.

Q: My business is a side gig and I also have a full-time job with health benefits. Can I deduct the premiums for a separate plan for my side business?
A: No. If your full-time job offers health insurance that covers you, you’re not eligible to deduct any premiums for a separate policy related to the side gig. In this case, since you have an employer plan available through the job, the self-employed health insurance deduction isn’t available for that individual policy.

Q: Can I deduct out-of-pocket medical costs (doctor visits, medicines, etc.) through my business like I do premiums?
A: No. Routine out-of-pocket medical expenses are not deductible as a business expense or above-the-line item. They can only be deducted if you itemize and only beyond the 7.5% AGI threshold. The special deduction we’ve discussed applies only to insurance premiums (and qualified long-term care premiums), not to copays, deductibles, or other medical expenses. (One exception: if your business has an HRA or similar plan reimbursing those, that’s a different mechanism.)

Q: Is the self-employed health insurance deduction available in addition to the standard deduction?
A: Yes. It’s separate from the standard deduction. You can take the full standard deduction (or itemized deductions, if you choose) and also reduce your income by the health insurance premiums you paid. They don’t interfere with each other.

Q: Does deducting my health insurance premiums affect my self-employment tax (Social Security/Medicare)?
A: No. Unfortunately, it doesn’t reduce the self-employment tax. If you’re a sole proprietor or partner, your self-employment tax is calculated on your net business profit which doesn’t include this deduction. The deduction will lower your income tax but not the SE tax. (If you are an S-corp owner, you’re paying yourself wages, so a bit of a different framework – but the premiums aren’t subject to FICA if handled correctly, which is one advantage of that route.)